Default Tsunami

66
2040
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After about seven years, the average new car is worth less than half what it sold for new. As of the third quarter of last year, says the credit reporting apparat Experian, almost 20 percent of all new car loans issued were for seven years – and 11 percent of all used car loans.         

The latter being the more interesting of the two data points since the value of a used car after seven years is probably less than balance still due on the loan by then. 

And probably sooner. 

Even if it is only two or three years old, it will likely have lost around 20 percent of its original new-car value. Seven years down the road, it doesn’t look so good.

This means there are apt to be a lot defaults on used car loans coming since it’s not economically rational to continue making payments on something that’s not worth making payments on. This factor will likely be magnified by the fact that people who take out seven year loans on used cars are generally not the most affluent demographic to begin with and often have not-so-good credit scores in addition, which means they can’t afford to pay much to start with and are probably paying usurious interest on the loan. Many of them will either be unable to continue making payments or simply decide to stop making them. 

If even half of these subprime car loans end up in default, it will impose significant deflationary pressure on the used vehicle market  because it would amount to tens of thousands of repo’d used vehicles hitting the market. Probably some of these will end up being re-financed – and maybe for seven more years. 

There are apt to be more defaults on those new car loans, too. Seven years is a long – an unpredictably long – time to sign up for not-so-low monthly payments people might be able to swing today.

But how about tomorrow? 

These Methusalean loans on depreciating assets assume economic stability over time. A long time. Most people these days do not stay at the same job as long as the loan on their vehicle. But the loan is based on the assumption that the lender’s income will remain the same and so sufficient to make those payments. This also assumes the payments for other things – such as food and energy, for instance – remain about the same. What happens when they increase but income does not?

This, of course, is exactly what has been happening at just the moment in time that the seven-year-loan seems to be supplanting the six-year-loan. The private banking cartel that controls the supply – and so the value – of the fiat currency everyone is obliged to accept as the medium of exchange has devalued what that currency will purchase by 8-12 percent. Put another way, what people are paid – in fiat currency – buys 8-12 percent less than it did a couple of years ago (when Orange Man Bad). The cost of necessities – food and energy and housing – has not increased. That is the fallacy of what is presented as “inflation.” It confuses many people because they seem – they are – less able to afford what they used to be able to afford. But it is not because the cost of those items has increased.

The price has.

It takes more fiat currency to buy the same things.

But that means less fiat currency available to buy other things. Or to make payments on them. Especially when one does not have to.

One does have to make payments on things like food and energy and housing because if one does not, one will not be around for long to make payments on anything. Eating isn’t optional. Neither is staying warm enough to avoid freezing to death.

But a car payment is.

These will be the first things shed as people pare down what they can still afford to make payments on.

And it’s already begun.

TransUnion – another credit reporting apparat – reported that as of November of 2022, about 3.35 percent of car loans are past due/delinquent, the highest percentage in five years. Note that most of those loans were taken out before the “Fed” – as the private banking cartel that controls the currency is styled – jacked up interest rates on loans. If 3.5 percent are defaulting on loans with low (or at least, lower) interest rates, how many who took out loans with much higher (2.8 percent higher, on average) interest rates will also stop making payments once they can’t afford to continue making them? Or realize it would be economically foolish for them to continue making them?

We are probably right now living in a moment akin to the moment just before you flush the toilet after doing your business. And it may serve the same salutary purpose. The average transaction price of a new vehicle is now almost $50,000. This does not mean you cannot buy a new vehicle for half that sum. It means lots of people are financing vehicles for twice that sum – and probably two-thirds of them can’t afford it. But someone wrote them a loan on it.

Probably for seven years.

After the flush, the waters will clear and sense will, hopefully, return.

. . .

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66 COMMENTS

  1. Donald Trump has filed Chapter 11 bankruptcies six times.

    No receivership, gets to keep doing business so the money flows.

    Tar and feather the bum!

    Deutsche Bank loaned him some money and Trump missed a loan payment of 133,000,000 dollars.

    In May of 2007, Deutsche Bank had a share price of 145 USD. DB is at 12.71 USD today. There are consequences.

    Every puppy has his day
    Everybody has to pay
    Everybody has to meet his Waterloo

    – Stonewall Jackson, Waterloo

  2. This is about home loans but it could just as easily be about auto loans. Words from a CPA:

    ‘It May Be Financially Irresponsible to Pay Your Mortgage’

    “… In fact, it is state worship and economic ignorance that fuels the notion that you, as a victim of the state and its corporate state special interests, have some obligation to ruin your life and bend over to “take one for the team.”

    If all factors point to your best option being a default, then walk away guilt-free and boost your cash flow and future prospects, because ultimately, you are responsible for you, and none of these babbling naysayers are going to bail you out or come by to help clean up the mess. Walk away, free yourself from unnecessary bondage, and let the giant banks sort out the mess that they helped to perpetuate and swell.”

    https://www.lewrockwell.com/2010/01/karen-de-coster/paying-your-mortgage/

  3. See also:

    ‘Why a Strategic Mortgage Default May Be Your Best Option’

    “Businesses entrepreneurs and managers are constatntly analyzing and estimating various strategies, and that is how businesses become enduring and profitable. Individuals and households are no different in terms of planning best course scenarios and minimizing waste and losses. Except individuals and households suffer personally and emotionally by bearing an unfavorable financial condition. For that reason, they must take actions to alleviate uncertainty and keep their financial house in order.”…

    https://www.lewrockwell.com/2010/02/karen-de-coster/dear-bank-here-are-the-house-keys/

    (My computer won’t open the link to, ‘Read the rest of the article’ so I don’t know if it’s still there or not. I hope it is, it was a good one. Anyway, insert any loan type in place of ‘Mortgage’ above & it’s all still the same.)

  4. Since when is re-paying money borrowed contingent on whatever you spend it on not decreasing in value???

    When you sign that note, if you have any INTEGRITY, you meet your financial obligations, period

    I have several FORMER friends who just decided to walk away from their houses back in 09ish, simply because their houses went down in value

    They hadn’t lost their jobs, could still make the payments, just didn’t want to

    After that I could hardly stand the sight of them, let alone spend time with them

    Good riddance

    I love the line from Gold Rush –
    “most lessons cost money, the good ones are EXPENSIVE” Tony Beets

    • “When you sign that note, if you have any INTEGRITY, you meet your financial obligations, period.”

      Bravo, my dear. Your post is 100% accurate. Unfortunately, we live in a society where it is much easier to walk away then deal with the consequences of one’s actions.

    • Wait a minute, wait just a dog-gone-minute.

      When a person signs a ‘note’ the terms are, ‘pay up or give back’ Deciding to give it back is not an INTEGRITY issue, rather it’s rational behavior and the terms of the agreement are met. Consider:

      ‘The Subprime Crisis and Government Failure’

      “When the value of a house, which is the mortgage loan’s collateral, falls below the amount owed on the loan, the borrowers have an incentive to walk away from the loan and deliver the house back to the lender. Defaulting on a mortgage is always an option. The borrower can “put” the house back to the lender. This incentive is powerful. Why should a borrower pay off a loan for $200,000 and end up with a house worth $150,000? He loses $50,000 by doing this. If he can walk away from the loan, and he can, then he has a strong incentive to do so. Borrowers began defaulting on their loans, and this was a rational response to the decline in housing prices.”…

      https://www.lewrockwell.com/2008/04/michael-s-rozeff/the-subprime-crime/

      • Are you kidding me, helot? Where on any loan does it say pay up or return to sender? If one signs a contract or shakes a hand, they have made a deal. Both parties have the responsibility to see the agreement through. It doesn’t matter if one takes a wash on it. One agreed to the price and terms when they decided to purchase it and finance it. If one does not want to be party to the contract set forth, they can sell it for what they can get for it and make up the difference in funds.

        Someone who does not honor their contract hurts everyone that does. Why should the rest of us have to pay the form of stricter credit restrictions, lower real estate prices, and company defaults because someone else couldn’t be bothered to honor the terms that were set?

        • Are you kidding – me – RG? Are you feeling ok? “Where on any loan does it say pay up or return to sender?”

          “… the borrower signs a promissory note and “the contract explicitly details the penalty for nonpayment – surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.” – from a link above.

          “… we should place the blame squarely where it belongs, which is on government failure, that failure being in the fiat money inflation brought about by the Federal Reserve.” – Michael S. Rozeff

          • Depends on what the contract specifies for the outstanding balance.

            In CA, and many other states, a first mortgage for PURCHASE contains, by law, a provision that should the proceeds of repossession not satisfy the loan, the remaining balance is not owed by the borrower. This is one reason a conventional mortgage, if the loan organization is more than, sat, 80 percent of the appraised value, why mortgage insurance is required, to cover the lender’s much-increased risk.

            Usually, upon refinance, this borrower protection is LOST, something that glib seller of a “refi” often fails to mention.

        • Helot is correct.

          “Where on any loan does it say pay up or return to sender?” Every single mortgage that’s ever been written.

          The exception is if you live in a Recourse State, where if you are underwater on your mortgage, you are liable for the balance. Such loans are usury (see link below), and therefore you are under no moral obligation to pay back. Therefore, integrity doesn’t play into it but state action might.

          https://zippycatholic.wordpress.com/2012/12/30/simple-usury-test/

          If I was a sheriff in a recourse state, I would tell the bank that was foreclosing on an underwater house to either accept the house as paid-in-full, or I will never foreclose in effect, forgiving the loan.

          • Except, a contract is not only a mortgage. What does one do when a credit card is involved, or a service was performed, and the payee decides not to see it through? What happens if it isn’t the bank that holds the mortgage, but is seller financed? So sorry Henry Homeowner that is what you get for providing me the benefit of the doubt. Yes, I agreed with your $500K selling price, but since the house is now worth $425K it is yours again.

            • All of my arguments are moral, not legal arguments.

              1) What does one do when a credit card is involved?
              Credit cards, unless the interest rate is zero, are usury. There is no moral obligation to pay one penny back, unless the card is the old-style American Express card.

              2) A service was performed, and the payee decides not to see it through?
              That is not usury, and you are required to pay.

              3) What happens if it isn’t the bank that holds the mortgage, but is seller financed?
              The holder of the mortgage is irrelevant. Recourse mortgages are usury.

              “So sorry Henry Homeowner that is what you get for providing me the benefit of the doubt. Yes, I agreed with your $500K selling price, but since the house is now worth $425K it is yours again.”

              That’s correct.

            • Yup. Such, is life.

              …Risk. It should be factored into the agreement & the lender should be aware. %

              In several spots in the links I posted they discussed the risks… & how they came about, that sort of thing.

              “Yes, I agreed with your $500K selling price, but since the house is now worth $425K it is yours again. … you should’ve held out for an all cash offer, or lowered your price enough that someone could pay in full up front. At any rate, it’s a good thing this event was spelled out ahead of time in the terms & you knew – the risk”.

  5. “they are probably paying usurious interest on the loan.”
    EVERYBODY not a jew is paying usurious interest. Charging interest IS usury, and compounding it over time is heinous usury.

    We were BORN into the charging of interest, so we ignorantly accepted it as normal. Likewise, other huge lies we were born into.

    There should be no interest. There should only be a one-time FEE added to the amount borrowed. And then, of course, there could be previously set fees for being late or missing payments.

    In my first paragraph, I said “everybody not a jew.” That’s because the jews do not charge each other interest. Doubters ought do a deep search on this fact rather than poo-poo it away.

    And yes, the Federal Reserve is a private corporation, and it is owned by jews. Doubters can get this info with a simple search, or by simply adding two plus two. Congress and the president gave the money power to the jews’ Federal Reserve in December 1913.

    The Federal Reserve is essentially the jews’ third “Bank of America.” The first one was established by known jew Alexander Hamilton connected at the hip to crypto-jew George Washington. Thomas Jefferson, our first true, and great, White president, opposed it. Jefferson was instrumental in the death of that first jews’ “Bank of America.”

    The second one was established at the end of the so-called War of 1812, which was launched for that purpose, when crypto-jew president James Madison Jr. signed it into existence.

    The great true White president Andrew Jackson killed that second jews’ “Bank of America” in the 1830s.

    After that, the jews constantly caused a lot of trouble, contriving financial “panics,” until they got their monopoly in 1913 with the Federal Reserve. And they still have it. And since then, they got the WHOLE government.

    But the idiots and the ignorant will carry on debating left and right, and liberal and conservative, and “good” interest rates and bad interest rates, and etc etc.

    One of my maxims is: The Ignorant Always Think They’re Not.

    • Muslims too…can’t charge interest because it is usury….the Christian religion to….a long time ago….couldn’t charge interest because it is usury….

    • While Virginia’s ambitious governor makes political hay from … a low-tech battery plant:

      ‘Virginia Republican Governor Glenn Youngkin does not want his state to participate in Ford’s proposed battery manufacturing plant due to national security concerns associated with China. The automaker has an ongoing agreement with a Chinese company.

      ‘Youngkin said that the risk tied to the Chinese Communist Party (CCP) was “common sense,” calling the CCP “a dictatorial political party that only has one goal: global dominance at the expense of the United States.”

      ‘Richard Cullen, the governor’s chief legal counsel, told the WaPo that the battery project involved “national security risk-type technology.”’

      https://archive.ph/0bcC4#selection-1455.205-1455.357

      Ludicrous. *snort*

      Youngkin is right to resist battery plants, but for the wrong reason: because it’s a white elephant, not because it’s a front for the evil Cee Cee Peeeeeee.

      But now he’s earned his merit badge as a national security Republiclown. Munitions plants welcomed!

  6. Tech, media and financial companies are laying off staff at an alarming rate. This in addition to attrition through retirement and not backfilling that’s been going on everywhere else since 2019. We hear that there are still open positions that aren’t being filled, but they’re entry level.

    All those people with all that debt on the books might be in for a shock later this year, when they finally will throw O’Biden under the bus and announce that yes we really were in a recession after all, and the markets’ dead-cat bounce falls back to Earth.

    • ‘later this year, when they finally will throw O’Biden under the bus’ — ReadyKilowatt

      Tucker Carlson claims that with the appointment of special prosecutor Robert Hur, O’Biden ALREADY has been thrown under the bus, clearing the decks for a younger generation of dynamic, progressive Californicators like Kamala and Gaaaaaavin.

      “Biden’s” plight is not unlike that of the Hildabeest in the summer of 2016, with the FBI sniffing around (though pulling its punches) over her reckless mishandling of classified documents. That didn’t turn out well.

      The DOJ-FBI ‘fourth branch’ now de facto vets presidential candidates. Special prosecutors gumshoeing Trump and “Biden” signify that they are has-beens; ‘old worn-out souvenirs,’ as Jimi Hendrix used to say. Now the doors are open for new candidates in both of the ossified legacy parties — if the Deep State approves of them.

      As ol’ Saddam Hussein used to say, ‘Anything is possible now, my brothers!’

  7. Eric, any idea which car makes may have more subprime defaults? My sweetie is thinking about getting a newer “new to her” replacement for her ’06 Passat, and I mentioned your talk on the coming wave of defaults.

    • A Flood Of Repossessed Vehicles Poised To Hit The Used-Car Market

      best job right now…..repo man…they can’t find enough of them…

      Short supply combined with literally 0% rates caused many people to start buying any car that could “fit into their budget”. Why responsibly buy a 30k car, when you can finance a sick 100k truck at 84 months with 0% rate? I mean it’s free money after all. (this is a 7 year loan btw).

      The key issue that caused this is how Auto Loans are issued. Currently, Americans owe more than $1.2 Trillion on auto loans (the highest in US history and a 75% increase from 2009). Given the fact that more than 85% of cars are financed, we are looking at a massive problem.

      This was possible because dealerships successfully lobbied to have less oversight – meaning that there is no federal oversight with auto loans unlike Mortgages, student loans, and credit cards. Reduced oversight allowed them to lend money without proper background checks.

      An investigation in late 2021 found that up to 50% of the loans were given to customers who might not be able to afford them. The income and employment verification only happened 4 percent of the time. All of this means that more and more customers are starting to default.

      Doug DeMuro……….dropping prices seem to especially be affecting “gas guzzlers” like big SUVs (Land Cruisers, modded Jeeps, etc). No real surprise given gas prices, but worth a mention: your 100-Series probably isn’t worth what it was in August 2021.

      Same with real estate. People still listing for what they could have expected 6 months ago and properties are just sitting without offers for weeks where they would have bought in 24 hours sight unseen last year.

      https://www.zerohedge.com/personal-finance/flood-repossessed-vehicles-poised-hit-used-car-market

    • Hi Bill!

      I will have to check on this but – historically – Mitsubishi and Hyundai have had among the highest. I’m also betting a lot of EeeeeeeeVeeeees are going to be repo’d as well! Buy high – sell low!

  8. Under our credit based society, debt has become a way of life, and inflation is caused by increases in debt, but the debt bubble is inherently unstable.

    Thus in every recession I can remember, the shrill calls go out for the Fed to pivot and inflate, to save the debt system, but each time the Fed does a “QE” they need more heroin to animate the junkie.

    Thus the Fed has not stabilized the economy as the proponents claim, the Fed has cause our economy to experience huge swings as the Fed reacts one way then another to save the system.

    This phenomenon can be seen in the Fed Interest Rate MEGAPHONE chart: https://i.imgur.com/ohdGXhW.png

    And thus, back in 2019, I blogged this chart, and made a speculative claim that based on the megaphone pattern, interest rates and inflation would shoot up, completing the pattern.

    And now inflation did shoot up, and interest rates are indeed going up, and the Fed Powell is saying they are going to keep raising rates to force inflation back to 2%.

    https://www.nationalaffairs.com/storage/app/media/imglib/20110920_Cochrane3LARGE.jpg

    And if they megaphone pattern is correct, then you should expect interest rates and inflation to go higher than 1980, because the pattern is unstable.

    And obviously, if interest rates go higher than 1980, to stop inflation like Paul Volcker did, then the impact on our debt laden economy will be epic.

    And the stock market bulls, who expect imminent pivot, are wrong. And as interest rates go up, money will come out of crypto and go into T-bills. And gold, will eventually be affected as gold pays no interest, and T-Bills pay nearly 5%. And if T-Bills go to 20% like 1980, then crypto and gold will be slaughtered.

    And that also means that collectibles, like cars, may have already peaked. And rising rates, as this article points out, will cause massive defaults and a flood of used cars on the market.

  9. 8-12% inflation since the last year or two is bad enough. Now compound that rate over several years and you got a situation that is intolerable. We’ve got at minimum 2 more years of economic illiterates or economic saboteurs (I believe the later is more accurate) running the show until maybe we get relief. But I’m not optimistic since the damage maybe irreversible and the populace at large are dumb as rocks.

    • One big criticism of the Fed’s interest rate policy is from a simple observation, if inflation is still way above interest rates, then how will that stop inflation?

      Inflation is 8-12%

      Interest rates are 3-5%

      Thus the real interest rate is still negative, which means we are still in a inflationary environment. So to tame inflation interest rates must stay above inflation:

      https://static.seekingalpha.com/uploads/2017/9/21/2192311-1506020915943675_origin.png

      Critics say the Fed needs to jack interest rates above inflation to stop it. (I don’t know if that is true, but that is the argument) The historical precedent was back in the 1970s and early 1980s, Paul Volcker, the Fed chair, had to jack short rates above the inflation rate, and hold it there. That made him a god in Fed circles.

      https://duckduckgo.com/?t=ffab&q=paul+volcker+stopped+inflation&ia=web

      But as Eric details, there is a debt default tsunami on the way from just the current little blip so far, what happens if interest rates go back to 1980 levels.

      I will tell you, it will be car loan armaggedon. Same for housing. Same for government debt refinance.

      And if you want to know the real charade here, is that the Fed jacked the money supply by a huge amount and ignited inflation. More money was created in the last 24 months than in all US history:

      https://fred.stlouisfed.org/series/M1SL

    • Allen,
      Inflation is the very purpose of fiat currency. There’s no other reason to use it. “Money” can be printed. Wealth cannot be. Simple. So simple an Ivy League economist can’t understand it.

      • Martin Armstrong calculates 2022 Inflation at 32% for essential items,

        US Gov. (BLM) calculates Inflation at 6.5 % across 80,000 items.

        Mr. Armstrong asserts:

        …’Our inflation models came in at 32% for 2022. This does not include things like paper clips to bring down the entire average. This number is the basic core inflation that consists of food, energy, and transportation.’… and goes on to say …’The more things you throw in, the lower the inflation rate.’…’The more you include, the lower the inflation rate. The object is to reduce government spending which is indexed to the CPI.’…
        ————-
        Amerika is now often compared to Weimar, Germany. Inflation at 32% means we could be starting a hyperinflation – and that means USA might get banana republic interest rates, like 80%. But right now no one believes any of that, stock traders are all anticipating imminent Fed pivot.
        ————-
        Gold seems to be heading for a new high:
        https://goldprice.org/gold-price-chart.html

        IMHO interest rates could be getting ready to spike higher.

        • My HVAC unit is 20 years old and has some, shall we say, intermittent problems. An HVAC tech I know was looking at it in December and told me that, come January (now) the price of a new unit would be 30% higher due to new “SEER” rating requirements. May be true but still an inflation issue. I had other fish to fry and demurred (unit still running thank God, even through 2 recent geoengineered cool downs) but I got an inflation “real feel” temp from this guy. The only thing keeping CPI and other “official” inflation gauges in the “plausible” range is the totally political gasoline price which is inching up ever so slowly as we speak.

          • Oh man, my HVAC unit is just about as old.

            I’m seriously thinking of shifting to wood heat.

            Or, at least having it as a backup/tandem to the old maid.

            …Imho, it seems that Eric & Doug got the right idea.

            ‘Power Grid Down NO HEAT! what will you do?’

            https://www.youtube.com/watch?v=NQTyV8ZTC-c&t=6s

            …Add that, to the 10,000 things I gotta do.

            “Faster, pussycat, Sell. Sell. Sell.”

            • I’ve got a contractor “job site” propane heater contraption that kicks off major heat for my whole house (1350 sq ft) just in case. I used it once in early 2018 when power went out during something known in my parts as the “blizzicane.” 75 degrees and a tropical hurricane to 10 degrees and freezing in an hour! My Weber charcoal grill exploded into pieces! Definitely no geoengineering involved, though, right? Hahahaha! Frozen temps for a week after. Then back to 50s/60s. Still, it’s nothing like the quiet, civilized heat through the vents from the heat pump.

              • RE: ““job site” propane heater contraption that kicks off major heat for my whole house”

                That sounds interesting. Is that a homemade thing or is it a product with a name & a link?

                Propane is certainly a great way to go, ’cause right now kerosene is running a little bit above 11 Dollars a gallon if you buy it in a 5 gallon can.

                Also, RE: “My Weber charcoal grill exploded into pieces!”

                I don’t understand what yer sayin’. Those things are bomb proof. How does one, “exploded into pieces”?

                  • Thanks for the reply, Funk Doctor Spidock.

                    Somehow, I’ve never seen/noticed one of those propane heaters. They seem excellent, quite like a propane version of the kerosene heaters I use.

                    The conditions which took out your grill, I wonder if that’s what caused one of my window panes to just shatter. Poof! Just like, that. Nothing hit it.

  10. Sadly, that deflation of used car prices will really only apply to vehicles which are c.10 years old or less- i.e. too new to be of interest to those of us who like to invest in durable, low-tech, non-Big-Brother-assisted vehicles. In-fact, with so many people losing their financed cars, but who will still be needing to drive something, this may well cause the prices of older used vehicles to go even higher! 🙁
    Rust, accidents, Cash-for-Clunkers, and the refusal of people to preserve older vehicles when they weren’t so old, means that there is a very limited supply of old vehicles, and thus they just seem to keep appreciating in value. I remember about 15 years ago, people were predicting that the preserved classics of the 50’s and 60’s would start depreciating, as the people who valued them were getting old and dying off. Pffft, yeah, how’d that work out?!
    But yeah, the later-model used cars are definitely going to take a bath as the repos pile up, and those who are willing and able to buy them will be few and far between, except at fire-sale prices….which we are already starting to see the beginnings of, as Carmax and Carvana implode. (Who’s genius idea were those?- To pay top dollar for used cars whjen the market was at an unprecedented high? LOL- These are the same people who buy stocks when the market is at a new high and then sell them off when it’s in free-fall!).

    • A Flood of Repossessed Cars Poised to Hit the Used Car Market

      Worst Time to Buy in 30 Years

      There has never been a worst time in the last 30 years to buy a vehicle. Within the span of 2 years, cars went from being the largest depreciating asset one owned, to doing better than most of our stock portfolios, and I’ll explain exactly why.

      To get a better understanding of the insanity which is the car market, lets start with a number that we’re all familiar with: 9.1% (CPI for June). New & used cars are a large portion of that. New vehicles rose 11% yoy and used cars 7.3%.
      But percentages don’t do a good job at painting the whole picture so here are the raw numbers: 2 years ago: Average new car: 38k, Average used car: 20k. So what about 2022? Average new car: 50k (+24%)Average used car: 31k (+35%)[Used Car Image from Sully Below]

      Not lookin so hot is it? We went from walking into a dealership, buying a brand new car with $5000 in incentives, to dealerships asking for 10k “market” adjustments on seemingly boring cars (Lookin at you RAV4 hybrid). The culprit?
      Short supply combined with literally 0% rates caused many people to start buying any car that could “fit into their budget”. Why responsibly buy a 30k car, when you can finance a sick 100k truck at 84 months with 0% rate? I mean it’s free money after all. (this is a 7 year loan btw).

      Dealerships saw this, and started to push higher and higher loan terms. Telling customers its “only 900$ a month”. The average loan term right now? 72 months — an increase of about 33% since 2010 (48 months).
      But the era of 0% loans was last year, when the fed thought inflation was errrrr transitory (lol), so what’s going on now? Same thing… which makes it even worse. Car loan interest has gone up quite significantly, which means people are financing their car at insane APR.

      Imagine paying 7-8% interest on a 7 year loan for a car, and that is the scary part. People are literally paying hundreds of dollars a month just in interest for their car.

      The auto industry collapse has just begun and this would be one of the worst times for you to buy a vehicle. In a normal market (pre-2020), Auto Loan delinquencies hovered at 2 to 3%. Today that number is exploding with nearly 1 in every 4 loans in default in Washington DC

      The best-performing state is Utah with 4.5% of loans in default whereas other areas are much worse. California – 8.7%, Texas – 10%, Washington, DC – 23%. Once payment is more than 90 days late, the lender can repossess your car.

      https://mishtalk.com/economics/a-flood-of-repossessed-cars-poised-to-hit-the-used-car-market

  11. How to solve the problem:

    A 45,000 dollar loan, 10 percent down payment, write the loan for 20 years. 2250 dollars in principal, five percent loan, 2400 dollars or so, 200 dollars per month payment. 20 years of loan payments that make some sense.

    You’ll have extra spending money.

    Who cares about the banks? All they do is handle money, if they go broke, whose fault is it? Putin’s?

    Buy Countrywide!

    Buy Bear Stearns!

    “There are no problems, only solutions.” – Steve Tobias, The In-Laws

    The egg lady raised the price of eggs from three dollars to four dollars per dozen, worth every last 34 cents per egg.

    Don’t buy eggs from the grocery store unless absolutely necessary.

    George Steinbrenner was the Egg Man at his parents farm outside of Cincinnati in Ohio. George went on to win the World Series as owner of the New York Yankees.

    Never argue with success.

    • The new cars which cost $50-60k are not going to last 20 years.

      I’ll be surprised if the Fiat 4 cylinder engines in the Hybrid Jeep models, one of which Eric reviewed recently, last much beyond the warranty period.

  12. Never cared what someone else felt the value of what I own should be. For me the value of a reasonably cared for car, for example, increases dramatically when paid off. Instead of making $4-500 dollars in monthly payments (or much more) I now have $xxx extra dollars each month to spend on whatever. Two cars? Now I have $xxx(2) more each month plus the extra $$$ I don’t have to dish out for forced collision and other insurance required in our demokratic Union. Same for my home. I don’t need a McMansion and a pool. I have a nice home paid for. No forced insurance necessary unless you simply want it. All of this simply adds to income and savings where one doesn’t NEED to work retired as social security, much contrary to popular myth, doesn’t pay much these days of inflation. And believe it or not Medicare costs me more than when I was paying regular employee insurance,,, so don’t let it be said anyone on Medicare is getting anything free. That’s Medicaid which is also covered by my Medicare payments.

      • RK,
        Words of wisdom from my late father, “If you live above your means, you never have money. If you live beneath them, you always do. And don’t do business with people who trade horses.” Not sure about the horse trader thing, but the first part is so simple an Ivy League economist can’t understand it.

    • “ Never cared what someone else felt the value of what I own should be. For me the value of a reasonably cared for car, for example, increases dramatically when paid off “

      Ding ding ding! Yessir! Our 32 year old pickup still looks and runs just fine. To me it is priceless- I shudder to think what it would cost to replace it with the same functionality, comfort, and ease of maintenance. 11 years now on the rebuilt transmission, about 6 on the new a/c 134a system, and 1 year on the new Sony radio/receiver. All this for less $$ than tax/license on a replacement new truck.

  13. During the height of the scamdemic, it definitely seemed to me that many people took their stimmies and bought a new or new to them car. Now that the stimmies are done and cost of living prices are up 20-30% minimum across the board there is no doubt folks are struggling. Every time I’m out in the morning lately, I see the empty repo wreckers going South with the two guys in matching yellow shirts in the cab. Later in the day, I see those guys with 2/3 perfectly fine cars/trucks strapped on heading North.

  14. “After the flush, the waters will clear and sense will, hopefully, return.”

    As the eternal pessimist, I am not so sure. The economy flushed in 2008, and FedGov simply re-inflated the stock bubble, the housing bubble, printed more money, and incurred more debt. GM should have gone bankrupt; instead it got $20 billion in Federal cash. In 2008, the national debt was $10 trillion, now it’s $31 trillion. In the 1990s, fiscal hawks in Congress were freaking out over $200-300 billion annual deficits. Now everyone shrugs off $1 trillion+ deficits.

    Unfortunately, history shows what when Americans do something stupid like borrow too much, they invariably beg Uncle Sugar to make them whole, and he almost always obliges by giving them security in exchange for their freedom. Just look at the college loan forgiveness scam that Biden is pushing right now. Borrowed too much to listen to a purple-haired lesbian with tattoos lecture about the “oppression of the patriarchy” in sociology class? Here, pobrecito, Uncle Biden will give you $20,000. Don’t forget to vote Democrat in 2024.

    If there is massive default on auto loans, the car owners might get screwed but the banks and auto companies will get bailed out by FedGov. And in order to “do something” they’ll probably start pushing a Federal program for “affordable” transportation — electric, of course — with federal subsidies for the poor, minorities, and women.

    Bank on it.

  15. While I’ve gone “Galt”, I can still afford to buy a new car with cash. But as I feel they look ugly, have lots of blind spots and are expensive to fix I won’t buy them. In a previous comments section; Max Overhead mentioned a dealer called https://www.jpnautoimport.com/ , looks like an affordable alternative but I’d worry about parts availability. Don’t forget if you want your car to live longer you’ll need to do better maintenance.

    Maybe if we went back to the days of lower taxes, building it here and living within our means the future would look brighter. Not likely to happen but at least one can still dream.

  16. I wonder if schools are teaching basic economics today? I’m guessing not.
    I had to teach my kids.
    Simple concepts like, don’t go into debt. Having money in the bank is your ‘work’, your ‘time’ in the bank, and it gives you power, not the other way around when the bank loan is them having power over you.
    My son just bought his first truck cash. he listened to us, over time, and saved.
    My daughter is going through it right now and is on the fence about taking a loan on a car she wants (and becomes a slave), or waits makes the money and has power.
    Granted, money in the bank is losing value at the moment, so we have to be able to make it, but most of us know those disaster economic issues we are facing today.

    • Hi ChrisIN,
      I think if schools taught some basic math such as how compound interest works – for you or against you – instead of exotic crap like calculus everyone would be better off. Perhaps that’s why they don’t.

      • Hi Mike I bet almost no one studies calculus anymore haha. Doesn’t fit ian agenda and requires more than gnat like attention spans which no kid has now (besides Asians maybe). Overall pointis right of course. I took five levels of it btw – pretty frigging hard stuff.

  17. ‘there are apt to be a lot defaults on used car loans’ — eric

    Yep, the big banksters have been raising their loan loss provisions for several quarters now:

    https://cms.zerohedge.com/s3/files/inline-images/big%20bank%20releases.jpg?itok=vCT36E_Z

    Jamie Dimon of JPMorgan has been quite vocal for months that the economy is headed for trouble.

    No. 1 headache for auto lenders is that during 2022, used car prices plunged by the most on record. That is, the collateral value of a car is shrinking. As Eric mentions above, repo’ing vehicles and dumping them into a weak market will only partially recover the loan principal.

    Although banksters see what’s coming, auto makers are in denial. Lured by the carrot of free money from Big Gov, they aim to transform the Southeast in the Battery Belt for EeeVeeees. Recession (and buyer resistance) is going to blow a smoking hole in that blue-sky fantasy.

    By next year, even retarded tortoises like Ford and GM will have to face the music. ‘EeeVee Mary’ Barra may find herself unemployed, after betting the company and royally screwing the pooch. So bad, so sad.

  18. Up through the last holiday season before the pandemic, the big Chevy dealer here in Austin was offering 90 month loans on the fully equipped half ton trucks with turbo charged 4-cylinder engines.

    Most of those stories probably didn’t end well, but papa got his truck with a $500/month payment which mama wasn’t happy about but it kept peace in the house so everyone had a Merry Christmas.

    I wonder how many Ally let out the door without the extended warranties. We’re going to find out real soon.

  19. Everything feels reminiscent of 2008. I see peoples finances for a living and honestly, I don’t know how many are keeping their head above water. The cash out refinances of years past, the new cars, the exploding grocery bill, the increase in cost of pretty much every supply and service out there leaves most (even high income earners) very little remaining at the end of the day.

    I think the job market has been the only contributing factor on why the entire economy has not nosedived. There are still jobs available. They are starting to wane a bit and may not be the pick of the litter, but they are still there. What I am noticing is the closure of many businesses (especially small ones) are starting to occur. It is putting pressure on the remaining businesses because of the influx of new customers which the remaining businesses are trying to take on, but do not have the manpower or resources to do so.

    The increase in government regulations is making it even more difficult to right the ship. I can’t figure out if the assholes writing these new bylaws are wearing rose colored glasses or it is intentional to destroy smaller organizations. When businesses have to spend an extraordinarily amount of time trying to make sure they are compliant it leaves little time to produce and sell. Demands such as federal and state mandated minimum wages, forced retirement accounts, paid leave, etc. hurt many companies. I am not against an employer and employee negotiating or implementing such policies, but when government authorizes it kills the free market and makes the most qualified person less likely to work as effectively because why do so when everyone is rewarded with the same perks whether they produce or not. Our government and their bloated departments showcase this.

    • RG,
      “Everything feels reminiscent of 2008”
      Reminds me more of Weimar Germany.
      We have not yet recovered from 2008. What we see now is 2008 part two. There won’t be a part three.

    • RG,
      “When businesses have to spend an extraordinarily amount of time trying to make sure they are compliant it leaves little time to produce and sell.”
      Which is also why there are very few private practice doctors.

      • Yes all the compliance stuff -not to mention the marxist equality stuff which persecutes small business- is designed to make business so complicated that only corporations can afford the nonsense. The death of small business throughout the economy goes hand in hand with the elimination of the middle class. Which repubicans are totaally cool with of course.

    • ‘I think the job market has been the only contributing factor on why the entire economy has not nosedived.’ — Raider Girl

      I concur. Apparently the 2020 lockdown resulted in a few million people leaving the workforce permanently.

      So unemployment remains rock bottom low, and Jay Powell & Co. — gazing in their rearview mirror — keep hiking rates.

      I maintain a real-time economic indicator developed by Ed Yardeni. It uses industrial materials prices (available daily), new unemployment claims (released weekly), and consumer sentiment (released twice a month). Yardeni’s indicator bottomed on Aug 5, 2022 and has strengthened since then:

      https://ibb.co/gv7gTd5

      So the rate hikes must continue until somebody faceplants. 🙂

    • “Unlimited” vacation.

      That is a really sinister concept which allows companies to avoid paying accrued unused vacation time in the event of layoffs while placing the productivity burden on the conscientious demographics who have always shouldered the burden.

      Microsoft just announced a switch to the policy.

      From each according to his abilities …

    • Hi RG,

      At the grocery store the other day, I was contemplating the cost of food vs. ability to buy it. Eggs are $6 a dozen. A diminished pack of bacon (10 ounces now) is $7. You leave the checkout with two small plastic bags of food and it’s $60 or more. What’s the minimum wage? About $11, right? So – after taxes – the average worker can just barely afford food. Forget rent, gas and so on. No wonder so many of them have stopped working. It makes more financial sense to collect the dole instead. At least you have free time.

      • If you cook for yourself it could cost $8.00 to $10.00 per day total for three meals .

        Eating in restaurants can cost $45.00 to $60.00 per day, $1050 to $1500 per month more then your own cooking, just for pretty much fast food, no wonder people are broke…..

        If I save $35.00 per day cooking my own food, for 3 meals it takes 1 hour total, so I am making $35.00 per hour, tax free……. (I am a fast cook), a good part time job.

        You also save on health care costs by avoiding fast food/low quality food.

        this doesn’t include $5.00 starbucks drinks or rip off $2.00 crappy coffees…note: coffee can be made for 5 cents to 10 cents a cup….lol…after I did the math on this i am reluctant to even buy coffee…lol

        If you invest $1,000 every month for 40 years at a 6% return, it will be worth $1,991,545.25

        $1.99 million dollars just from one person

        people go expensive restaurants for the experience…cool decor, trendy…

      • Welfare now is something like $900 total for a single person in some ares…… some people living in tents get the tent free from the government….if they cook their own meals (all it requires is a small cheap alcohol stove) it costs about $300 a month for one person plus maybe another $100 per month for fuel for cooking and heat….

        so living on $900 per month is possible….instead of using the money to cook their own meals it is probably in some cases spent on drugs or very expensive cigarettes….and they go buy $2.00 coffees which costs a lot over a month…they can make their own coffee for $0.10….

        you also see them eating restaurant food/fast food which is 7 times more expensive then cooking their own food……..

        The $900 is wasted….then they ask you for money….lol…..the only overhead they have is $300 a month for food plus maybe another $100 per month for fuel for heat/cooking…the government gives them clothes, medical and in some places dental care through welfare…..free showers are available…..free meals are available too……..and no working 9 to 5 to pay your own way……..

        there was stories of some people making up to $300 per day asking for money on the street…

        some people are making up to $300 per day cash asking for money on the street…so they won’t go to work and make less….they are laughing at you…..plus they can get welfare and free stuff from the government….

  20. It would surprise me if there weren’t a LOT of repossessed used stuff on the market at bargain prices this year. From furniture and appliances, which no one should go into debt for, to cars, trucks, and RVs. All at the hands of the Fed, banks, and FedGov. The Fed through “monetary” destruction. The banks through making highly insecure loans. The FedGov through general destruction of the free market, and the newly enhanced IRS enforcement division. A little known fact, most IRS penalties are imposed on cases which DO comply with IRS regulations, but the victim can’t afford to fight the IRS. The IRS has NEVER focused on very wealthy individuals and big corporations. After all they are the source of campaign contributions, and CAN afford to fight the IRS.

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